Standard Level IB Syllabus
Introduction to economics The purpose of this section is to introduce the basic terminology and concepts of economics. Students are encouraged to consider what markets and governments can and cannot do. This section of the syllabusgives them an early opportunity to begin to explain economic phenomena through the use of diagrams,data analysis and the evaluation of economic material. This section is intended to make students awareof the role of economics in real-world situations. Even at this initial stage teachers and students shouldconsider the application of economic theories to developing countries, since development economics isintegral to the course. • Definitions of Social Science and Economics • Definitions of Microeconomics and Macroeconomics • Definitions of Growth , Development Economics , and Sustainable Development • Positive and Normative concepts • Ceteris Paribus • Scarcity : • factors of production: land, labour, capital and management/entrepreneurship : • payments to factors of production: rent, wages, interest, profit • Choice : • utility: basic definition : • opportunity cost : • free and economic goods : • production possibility curves: definition :: • diagrams showing opportunity cost, actual and potential output :: • diagrams showing economic growth and economic development • Rationing Systems : • basic economic questions :: • what to produce? :: • how to produce? :: • for whom to produce? : • mixed economies :: • public :: • private :: • central planning versus free market :: • economies in transition Microeconomics The purpose of this section is to identify and explain the importance of markets and the role played bydemand and supply. The roles played by consumers, producers and the government in different market structures are highlighted. The failures of a market system are identified and possible solutions areexamined. The concepts learned here have links with other areas of the economics syllabus; for example, elasticityhas many applications in different areas of international trade and development. Markets • Definition of markets with relevant local, national and international examples • Brief descriptions of perfect competition, monopoly and oligopoly as different types ofmarket structures, and monopolistic competition, using the characteristics of the numberof buyers and sellers, type of product and barriers to entry • Importance of price as a signal and as an incentive in terms of resource allocation • Demand : • Definition of demand : • Law of demand with diagrammatic analysis• Determinants of demand : • Fundamental distinction between a movement along a demand curve and a shiftof the demand curve • Supply : • Definition of supply : • Law of supply with diagrammatic analysis : • Determinants of supply : • Effect of taxes and subsidies on supply : • Fundamental distinction between a movement along a supply curve and a shiftof the supply curveInteraction of demand and supply : • Equilibrium market clearing price and quantity : • Diagrammatic analysis of changes in demand and supply to show the adjustmentto a new equilibrium • Price controls : • Maximum price: causes and consequences : • Minimum price: causes and consequences : • Price support/buffer stock schemes : • Commodity agreements Elasticity • Price elasticity of demand (PED) : • Formula : • Definition : • Possible range of values : • Diagrams illustrating the range of values of elasticity : • Varying elasticity along a straight-line D curve : • Determinants of price elasticity of demand • Cross-elasticity of demand : • Definition : • Formula : • Significance of sign with respect to complements and substitutes • Income elasticity of demand : • Definition : • Formula : • Normal goods : • Inferior goods • Price elasticity of supply : • Definition : • Formula : • Possible range of values : • Diagrams illustrating the range of values of elasticity : • Determinants of price elasticity of supply • Applications of concepts of elasticity : • PED and business decisions: the effect of price changes on total revenue : • PED and taxation : • Cross-elasticity of demand: relevance for firms : • Significance of income elasticity for sectoral change (primary to secondary to tertiary) as economic growth occurs Market Failure • Reasons for market failure : • Positive and negative externalities, with appropriate diagrams : • Short-term and long-term environmental concerns, with reference to sustainable development : • Lack of public goods : • Underprovision of merit goods : • Overprovision of demerit goods : • Abuse of monopoly power • Possible government responses : • Legislation : • Direct provision of merit and public goods : • Taxation : • Subsidies : • Tradable permits : • Extension of property rights : • Advertising to encourage or discourage consumption : • International cooperation among governments Macroeconomics The purpose of this section is to provide students with the opportunity for a detailed examination of the major macroeconomic issues facing countries' economic growth, economic development, unemployment, inflation and income distribution. Section 4 deals with external equilibrium. Income distribution is introduced here in section 3 but is addressed in greater detail in section 5. The economic strategies available to governments—demand-side policies, supply-side policies, direct intervention—are introduced and evaluated. These policies are applicable to almost all areas of macroeconomics, international economics and development economics. Measuring national income • Circular flow of income • Methods of measurement—income, expenditure and output • Distinction between: : • gross and net : • national and domestic : • nominal and real : • total and per capita Introduction to development • Definitions of economic growth and economic development • Differences in the definitions of the two concepts • Gross Domestic Product (GDP) versus Gross National Product (GNP) as measures of growth • Limitations of using GDP as a measure to compare welfare between countries • Allowance for differences in purchasing power when comparing welfare between countries • Alternative methods of measurement • Problems of measuring development Macroeconomic models • Aggregate demand—components • Aggregate supply : • short-run : • long-run (Keynesian versus neo-classical approach) • Full employment level of national income • Equilibrium level of national income • Inflationary gap • Deflationary gap • Diagram illustrating trade/business cycle Demand-side and supply-side policies • Shifts in the aggregate demand curve/demand-side policies : • fiscal policy : • interest rates as a tool of monetary policy • Shifts in the aggregate supply curve/supply-side policies • Strengths and weaknesses of these policies Unemployment and inflation • Unemployment : • Full employment and underemployment : • Unemployment rate : • Costs of unemployment : • Types of unemployment :: • structural :: • frictional :: • seasonal :: • cyclical/demand-deficient :: • real wage : • Measures to deal with unemployment • Inflation : • Definitions of inflation and deflation : • Costs of inflation and deflation : • Causes of inflation :: • cost push :: • demand pull :: • excess monetary growth Distribution of income • Direct taxation • Indirect taxation • Progressive taxation • Proportional taxation • Regressive taxation • Transfer payments International economics The purpose of this section is to encourage candidates to understand why countries trade, the problemsinvolved and how these problems are addressed. Students need to understand how exchange rates affect international trade. The international trade theory introduced in this section should be related to real-world examples. Reasons for trade • Differences in factor endowments • Variety and quality of goods • Gains from specialization • Political Free trade and protectionism • Definition of free trade • Types of protectionism : • Tariffs : • Quotas : • Subsidies : • Voluntary Export Restraints (VERs) : • Administrative obstacles : • Health and safety standards : • Environmental standards • Arguments for protectionism : • Infant industry argument : • Efforts of a developing country to diversify : • Protection of employment : • Source of government revenue : • Strategic arguments : • Means to overcome a balance of payments disequilibrium : • Anti-dumping • Arguments against protectionism : • Inefficiency of resource allocation : • Costs of long-run reliance on protectionist methods : • Increased prices of goods and services to consumers : • The cost effect of protected imports on export competitiveness Economic integration • Globalization • Trading blocs : • Free trade areas (FTAs) : • Customs unions : • Common markets World Trade Organization (WTO) • Aims • Success and failure viewed from different perspectives Balance of payments • Current account : • balance of trade : • invisible balance • Capital account Exchange rates • Fixed exchange rates • Floating exchange rates • Managed exchange rates • Distinction between : • depreciation and devaluation : • appreciation and revaluation • Effects on exchange rates of : • trade flow : • capital flows/interest rate changes : • inflation : • speculation : • use of foreign currency reserves Balance of payment problems • Consequences of a current account deficit or surplus • Methods of correction : • managed changes in exchange rates : • reduction in aggregate demand/expenditure-reducing policies : • change in supply-side policies to increase competitiveness : • protectionism/expenditure-switching policies • Consequences of a capital account deficit or surplus Terms of trade • Definition of terms of trade • Consequences of a change in the terms of trade for a country's balance of payments and domestic economy • The significance of deteriorating terms of trade for developing countries Development economics Throughout the course, students are introduced to several important concepts in development economicsand, in particular, to the fundamental distinction between economic growth and economic development established in section 3. This important distinction needs to be re-emphasized at the beginning of this section. Given the dynamic nature of the international economy, it is problematic to group countries into clearlyestablished categories such as developed, developing, newly industrialized countries (NICs) and transition economies. However, students should understand current terminology and be aware that similarities anddifferences exist within different categories. It is important for teachers to help students find relevantexamples of the different categories of countries. The main purpose of this section is to provide students with the opportunity to understand the problemsfaced by developing countries, and to develop an awareness of possible solutions to these problems. Sources of economic growth and/or development • Natural factors: the quantity and/or quality of land or raw materials • Human factors: the quantity and/or quality of human resources• Physical capital and technological factors: the quantity and/or quality of physical capital • Institutional factors that contribute to development : • banking system : • education system : • health care : • infrastructure : • political stability Consequences of growth • Externalities • Income distribution • Sustainability Barriers to economic growth and/or development • Poverty cycle: low incomes lead to low savings lead to low investment leads to low incomes • Institutional and political factors : • ineffective taxation structure : • lack of property rights : • political instability : • corruption : • unequal distribution of income : • formal and informal markets : • lack of infrastructure • International trade barriers : • overdependence on primary products : • consequences of adverse terms of trade : • consequences of a narrow range of exports : • protectionism in international trade • International financial barriers : • indebtedness : • non-convertible currencies : • capital flight • Social and cultural factors acting as barriers : • religion : • culture : • tradition : • gender issues Growth and development strategies • Harrod-Domar growth model • Structural change/dual sector model • Types of aid : • bilateral, multilateral : • grant aid, soft loans : • official aid : • tied aid • Export-led growth/outward-oriented strategies • Import substitution/inward-oriented strategies/protectionism • Commercial loans • Fair trade organizations • Micro-credit schemes • Foreign direct investment • Sustainable development Evaluation of growth and development strategies • Evaluation of the following in terms of achieving growth and/or development : • aid and trade : • market-led and interventionist strategies • The role of international financial institutions : • the International Monetary Fund (IMF) : • the World Bank : • private sector banks : • non-governmental organizations (NGOs) : • multinational corporations/transnational corporations (MNCs/TNCs) : • commodity agreements